Great futures are built on solid foundations, guided by well-reasoned strategies, and fueled by the ability to adapt and innovate.

As a wholesale cooperative owned by member financial institutions, the Bank’s primary goal is to provide our members with ready access to low-cost capital to support homeownership, affordable housing and community investment.  Achieving that goal in today’s dynamic environment requires us to stay closely attuned to the changing needs of our members while remaining focused on quality and performance. 

Solid foundation
Congress chartered the Federal Home Loan Banks in 1932 to ensure that there would always be an adequate supply of funds available for home mortgages.  In their early days, the FHLBanks contributed to the development of the long-term fixed-rate mortgage, which helped increase the rate of homeownership in the U.S. from 48 percent in 1930 to 64 percent in 1980.

In the more than 70 years since its founding, the Dallas Bank has responded continually to the twists and turns of the housing finance system to maintain its value to member institutions and their communities.  During the first 57 years, the Bank was primarily a creature of the savings and loan industry, which for most of that time represented the primary providers of housing finance in America.  As the deregulation of deposit rates and financial institution activities began in the early 1980s, the pace of change accelerated and the Bank expanded its lending activities significantly.

We broadened our offerings from a limited set of fixed-rate advances priced periodically at relatively wide spreads to the Bank’s cost of funds, to a wide range of fixed and floating-rate advances with maturities ranging from overnight to 20 years at interest rates set daily at levels much closer to the Bank’s cost of funds.  Members increasingly incorporated Bank advances into the mix of market-based funding alternatives available to them, which was a catalyst for the Bank’s considerable growth during the 1980s.

The Bank was equally responsive to change in 1989, when legislation was passed broadening the Bank’s membership base to include commercial banks and credit unions.  Since 1991, Bank membership has increased from about 200 thrift institutions to more than 875 banks, thrifts, credit unions and insurance companies located in towns and cities across Arkansas, Louisiana, Mississippi, New Mexico and Texas. 

As the new members became familiar with the Bank, they increasingly used advances as a routine way to fund their mortgage lending and community development activities.  The Bank’s total assets have grown nearly six fold since 1991 to almost $60 billion today.  Meanwhile, advances outstanding have increased by a factor of 10, growing from $4.0 billion at the end of 1991 to more than $40 billion.

In the early 1990s, we introduced structured affordable housing and economic development programs that have since touched literally thousands of communities and benefited tens of thousands of lives.  Through the Affordable Housing Program (AHP), the Bank has approved nearly $143 million in grants for projects designed to complete more than 33,000 affordable single-family and rental housing units.   In addition, over $1 billion in advances have been used to finance Community Investment and Economic Development over the same period.

By the late 1990s, as the expanded membership base solidified, our focus turned from membership expansion to finding ways to increase the value provided to our members.  In 1996, the Bank introduced SecureConnect as a way to facilitate the secure, electronic execution of advances and to enhance the delivery of existing products.  With members today executing 98 percent of all advance transactions through this electronic platform, Bank personnel can focus on working with members to evaluate alternative funding strategies. 

Proven strategies
Strong foundations are built on insightful, well-reasoned strategies.  The Bank has developed a strategic framework based on a cooperative business model that guides its operating philosophy and articulates the value proposition we offer our members. 

The Bank provides value to its members through low-cost products and services, and through members’ dividend return on their capital investment.  The Bank’s cooperative business model tilts the benefits of membership toward institutions that most actively use our products.  Products and services are priced at the possible based on our modest dividend and profitability objectives, ensuring that all members can participate in those benefits equally, regardless of size.  The Bank further enhances the value of membership through its financial stability and reliability, maintained through a modest risk profile. 

Our strategic focus is based on these principles and the competitive strengths that the Bank has to offer.  Our primary competitive advantage has been access to the capital markets as a Government Sponsored Enterprise, but we are not convinced that will be enough as markets evolve.  In recent surveys, our members have given us high ratings for trust, reliability and professionalism, which indicate a level of confidence that we must continue to earn every day.  That confidence also provides a base on which to build as we look at new ways to add value to Bank membership.

We believe that market leaders refuse to be content with the status quo, and are continually seeking ways to deliver added value to their customers.  The Bank’s success going forward will rely upon our ability to understand the needs of our members – often even before they do – and consistently deliver products that address gaps in the market at service levels that exceed customers’ expectations.

 Forward-looking innovation

We recognize that people do not instinctively want a product or service; rather, they want answers to questions, solutions to problems, or pathways to desired destinations.   By tradition, we seek to fulfill these needs.

The Bank’s customer-centric approach manifests itself in a number of ways:

• Because advances remain our core product, we continue to add new or enhanced variations on our wide range of advances products to meet the specific and evolving needs of customers. 

Well-received new offerings include discount note and option-based advances, a pre-payable amortizing program and Red Hot Specials that feature specific advance offerings at special pricing.  Recent enhancements to existing products include incentive pricing for on-line execution and lower rates for advances executed prior to 9 a.m. and 1 p.m.

• We have enhanced and expanded SecureConnect’s role as a single, secure service portal for our members.  In addition to advances, members can use SecureConnect for traditional services like demand deposit accounts, wire transfer, collateral, and safekeeping.  The menu of offerings available through SecureConnect will continue to grow.

• In 1998, the Bank introduced the Mortgage Partnership Finance® (MPF®) program to members as an alternative to holding fixed rate loans in portfolio or selling them into the secondary market.  This innovative method of financing home loans – developed by the FHLBank of Chicago – combines the credit expertise of local lenders with the funding and hedging advantages of an FHLBank to create a more economical and efficient method of funding mortgages for many smaller members. 

The MPF Program gives lenders the best of both previous models of mortgage lending.  They can retain the credit risk and customer relationship of their loans, while shifting the interest rate and prepayment risks to the FHLBank.  Our members have sold more than $8.2 billion in loans through the MPF Program thus far.

• Deposit Auctions were introduced in 2001 as a way for Bank members to invest their excess liquidity and earn a competitive return by bidding for fixed term and callable deposits.  The auctions spare members the operational and transactional hassles often associated with purchasing money and capital market instruments.

The Bank sets each auction’s maximum rate based on the comparable rate that the Bank would pay for debt of the same maturity in the capital markets.  Members have a one-hour window each week to bid on selected maturity ranges, which can vary from seven days to five years.  The auctions are conducted through SecureConnect, which allows participants to view all competing bids and react accordingly. 

• A Funding Model was introduced in 2003 to provide members with the ability to analyze the results of alternative match-funding strategies on-line across a variety of scenarios. 

Members can model various combinations of different kinds of advances and terms, and combine advances with their own funds in order to create the most profitable strategies for their institution.  The model generates prospective net income, return on assets, return on equity and interest rate shock analyses.  It also provides useful insight into how an asset’s repayment speed might affect the member institution's bottom line. 

• AssetConnection is our newest service offering.  When surveys and member interaction pinpointed a desire for members to transfer assets among themselves for more effective portfolio management, the Bank responded.  AssetConnection matches institutions with excess loan demand (more assets than they can accommodate) with institutions that have fewer lending opportunities (fewer assets than desired).

The first phase of AssetConnection is an electronic communication system that allows members to post offers to buy or sell a variety of assets such as single-family, multi-family and commercial mortgages.  The asset owner negotiates directly with interested parties, and discloses the quality of the loans, types of assurances and terms of sale

Future phases of AssetConnection may standardize credit and quality criteria for posted assets, provide order matching functionality, and eventually provide for trade execution.  The Bank may also add custodial, quality control, due diligence and other services to assist with transactions.

We listen, analyze and respond, helping our members to leverage change to their benefit. 

Yesterday, today, tomorrow

Every day, the Bank works with our member institutions to help families across our District realize the dream of home ownership, to stimulate the creation of affordable housing, and to improve the local business environment.  Our mission remains clear, our resolve firm.  We believe the best is yet to come. 
 
 

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